Business

Amazon Investors Shake Off Profit Drop

Amazon’s first fiscal quarter surprised shareholders Thursday by beating performance expectations. Investors sent shares upward even though the online retailer reported a 35 percent drop in net income.

Amazon announced a net income of US$130 million, or 28 cents a share, for its latest fiscal quarter. That’s down from the $201 million, or 44 cents a share, it reported a year ago, but it’s not as big a drop as was expected.

Sales rose 34 percent to $13.2 billion, up from $9.86 billion at the same time a year ago.

The company doesn’t typically release sales figures on its Kindle devices, but it said the Kindle Fire was the number one bestselling, most gift, and most wished-for product among all of the company’s offerings. Amazon said that its digital products, including the Kindle, digital books, music and apps accounted for nine out of 10 of the top sellers on the site.

The company warned that it was expecting to see a loss in operating income during the next quarter. Despite the conservative guidance, investors wanted in on the action after the earnings were released. In after-hours trading, shares perked up nearly 15 percent.

Revving Up Investors

Sometimes Amazon scares investors by putting much of its efforts and resources into projects such as launching the Kindle line, said R.J. Hottovy, analyst at Morningstar. However, those investors are starting to see that those long-term initiatives can pay off in the long run.

“The real takeaway here is that there is an improvement in operating margins,” he told the E-Commerce Times. “We’re seeing that the company’s core business does have some leverage.”

With faith in the core business, said Hottovy, it’s easier to get behind investing in the company as it aspires to be a more powerful retailer of online digital content.

“When you see investments with the Kindle products and other new technology, including streaming content rights, you’re going to ultimately keep consumers coming back,” said Hottovy.

The initiatives that foster that company loyalty are the ones that Amazon will continue to pursue going forward, said Hottovy. “They’ll continue to invest in the product. It’s a nice ecosystem to get people back to Amazon.com.”

Kindle Fire Staying Hot

Even though Amazon doesn’t release specific sales figures for the Kindle Fire, it appears the $200 tablet has been able to take a decent chunk of the crowded tablet space. Its main competitor, the iPad, is still the clear leader, but John Feland, CEO and founder of Argus Insights, said the inexpensive, smaller device is just what some consumers are looking for.

“The consumers continue to carry a flame for the Kindle Fire,” he told the E-Commerce Times.

Feland’s company found that as solid rumors of the third-generation iPad starting forming, consumer response to both the Kindle Fire and the iPad 2 slowed. When the newest iPad launched, many consumers appreciated some of the latest features but were drawn to the iPad 2, with its lowered price point. But, to Feland’s surprise, it wasn’t just a contest of old iPad versus new iPad.

“More interestingly, in response on the Kindle Fire, responses actually jumped up in the days after the iPad 3 was announced and the day it was available,” he said. “Prior to the new iPad launch, consumers were holding their breath for what Apple might do, a smaller form factor, cheaper prices, etc. When Apple didn’t [release a smaller iPad], Kindle Fire customers returned to levels not seen since months before the new iPad was launched,” he said.

In that area, Amazon has been able to dive into a market where major tech players such as Samsung and HP have struggled, which is one of the reasons investors are eager to get in on Apple stock options today, said Hottovy.

“As we’ve seen digital media shift from physical to digital in terms of how they’re distributed, you need a product like that to maintain a marketplace. Amazon is showing us now they’ve done a good job of creating that,” he said.

Amazon didn’t respond to our requests for comment on the story.

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